Report: Illinois Budget Busted By Retiree Health Care

Published March 30, 2012

The state of Illinois can no longer afford free or subsidized health care for retired state workers, according to a report released by the Illinois Policy Institute.

The report, authored by Illinois Policy Institute health care policy analyst Jonathan Ingram, says benchmarking retiree contributions to the average contributions made by retirees in other states could save Illinois more than $40 billion in the next three decades.

Lavish Public Sector Retirement

The report comes as Illinois Democrat Gov. Pat Quinn faces an ever-increasing budget deficit, driven in large part by pension and health care costs.

“The General Assembly increased retiree benefits without sufficient revenue to pay for benefit increases. Previous legislators and previous governors awarded taxpayer-funded health insurance benefits to themselves and 82,000 retirees, where 90 percent of them pay nothing on their insurance premiums,” Quinn said in his February budget address. “This lack of fiscal accountability has cost us dearly today.”

Although there is no simple fix for the Illinois deficit problem, several steps can be taken, Ingram says, including indexing benefits to those of other states, and capping and eventually ending some retiree subsidies. He argues the state should reform its retirement system to give less to those who retire early and to reward those who postpone retirement, to bring public sector retirement rates more in line with the private sector.

“Private sector employees rarely are offered retiree health insurance. When they are offered coverage, many have to pay the full cost of their premiums. Because the state already has increased the pension ‘full benefit’ retirement age to 67 for newly hired employees, it simply should end retiree subsidies for new hires, as well,” writes Ingram.

Possible Legal Obstacles

There are legal obstacles to reforming the state’s pension system, however, because the Illinois Constitution protects state pensions. But adjusting health coverage for retirees is not the same as changing the pension, Ingram notes.

“The state can reform retiree health benefits at any time,” Ingram said. “These benefits were were created separate of the pension plans, are not codified in the pension code, and are administered outside of the pension systems. They are completely separate from pension benefits and are not protected by the Illinois Constitution.”

Ingram notes Illinois has already made limited changes to state workers’ benefits, allowing for premiums to be charged for dental coverage in 2009 despite opposition from the state employees union.

“The state can reform or eliminate these programs at any time,” says Ingram. “We’ve offered what we think are fair and practicable ways to fix the system, today and moving forward.”

Loren Heal ([email protected]) is a research programmer at University of Illinois at Urbana-Champaign.

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Diagnosis: Disaster, Illinois Policy Institute: